“Vedanta Resources Plc Q4 & FY15 Earnings Conference Call”€¦ · page 1 of 26 “vedanta...

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“Vedanta Resources Plc Q4 & FY15 Earnings Conference Call”

May 14, 2015

MANAGEMENT: MR. ANIL AGARWAL – CHAIRMAN

MR. TOM ALBANESE – CEO, GROUP

MR. DD JALAN, GROUP CFO

MR. MUKESH BHAVNANI – GENERAL COUNSEL & CHIEF

COMPLIANCE OFFICER

MR. MAYANK ASHAR – CAIRN INDIA

MR. SUDHIR MATHUR -- CAIRN INDIA

MR. AKHILESH JOSHI – CEO, HINDUSTAN ZINC

MR. STEVEN DIN – KCM

MR. SK ROONGTA – ALUMINIUM AND POWER

MR. ABHIJIT PATI – ALUMINIUM AND POWER

MR. KISHORE KUMAR – IRON ORE

MR. ASHWIN BAJAJ – DIRECTOR, INVESTOR RELATIONS

Vedanta Resources Plc. May 14, 2015

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Ashwin Bajaj I am Ashwin Bajaj, Director of Investor Relations for Vedanta Resources. Thanks for joining

us today to discuss our Financial Results for FY-2015. Let me introduce our management team

present with us today. We have Mr. Anil Agarwal — our Chairman; Mr. Tom Albanese —

CEO of the Group; and Mr. DD Jalan — Group CFO. We also have with us Mukesh

Bhavnani, who joined us a few weeks ago as General Counsel and Chief Compliance Officer.

We have leaders from several of our businesses on the phone line with us: We have Mr.

Mayank Ashar and Sudhir Mathur from Cairn India; Mr. Akhilesh Joshi from Zinc; Mr. Steven

Din from KCM; Mr. SK Roongta, and Abhijit Pati from Aluminium and Power, and Mr.

Kishore Kumar from Iron Ore

With that, I would like to hand over to our Chairman.

Anil Agarwal: Good Morning, Ladies and Gentlemen. I really appreciate your coming today. It has been

another busy year for us, and I am pleased to announce a strong set of results despite

challenging market conditions. These results reflect the quality of our assets, the benefit of

diversified portfolio and the hard work of our whole team. Given the current commodity

prices, we are working to maximize cash flow from our low cost operations and reduce group

leverage, while staying committed to our progressive dividend policy. We remain focused on

creating long-term value for our shareholders through our portfolio of well-invested assets with

significant further upside. Our assets are low-cost, and generate positive free cash flows even

in times of low commodity prices. I am positive that as India leading resource company, we

are well positioned to support and benefit from the country’s future growth. As you are aware,

the new government in India is focused on driving growth, and creating a business-friendly

environment. We have seen several positive developments in the last few months with regard

to our sector and Vedanta, such as auctioning of coal blocks, Parliament has passed the bill for

MMDR Act, etc., Tom will speak about the tailwind from these developments in more detail.

We are also a large contributor to our economies and communities where we operate, and are

committed to create value for all our stakeholders.

With that, I will hand over to Tom Albanese and DD Jalan, and the rest of the team, to walk

you through the results.

Tom Albanese: Thank you, Chairman, and Good Morning, Ladies and Gentlemen. I am pleased to Welcome

You to the Fiscal Year 2015 Earnings Call of Vedanta Resources Plc. As you can see, we have

refreshed the Vedanta logo and it encapsulates the Group’s commitment to our employees and

stakeholders in all our areas of operations.

The resource sector has witnessed a challenging year due to decline in commodity prices and

demand are being slower from China. We at Vedanta are fully equipped to navigate this

downturn, and have been implementing a series of initiatives to reduce capital and operating

costs in order to maintain the financial strength during this period of weaker commodity

markets. We will do this as you can see while preserving a strong resource position and

portfolio of assets with attractive long-term growth prospects.


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Let me now start with a review of the Fiscal Year performance: Again, as always, I will start

with Safety: In terms of safety performance, last year did see a significant decrease in LTIFR

and enhanced safety focus across the operation. We do believe some of the programs we have

implemented over the last year are beginning to bear fruit. Notwithstanding that, it was a tragic

year; we lost eight of our colleagues, which is unacceptable. In a drive to institute a culture of

zero harm and eliminate fatalities, we are setting the tone at the top and are employing multiple

interventions including improved safety investigations, redrafting standard operating

procedures, and continued safety behavioral training. Safety remains my top priority as I

believe that safe businesses make good businesses.

We continue to engage with our stakeholders and make significant investments in communities

and the environment. We have spent more than $50 million on environmental protection

measures in the last 3-years. During the year we made a significant contribution of $40 million

in community initiatives and $4.6 billion of the government exchequer in the form of taxes,

duties, royalty and profit petroleum payment, while also benefiting over 4 million people

through our community development programs, these are big numbers.

Operationally, we had a good year with record production at Zinc India, Copper India,

Aluminium and Alumina. Resumption of Iron Ore production at Karnataka and normalisation

of Oil & Gas operations after the planned maintenance shutdown in the second quarter of this

year. However, our KCM production was lower due to as we said ongoing shaft remediation

work on the Konkola site and lower grades in the Nchanga complex at KCM.

I see this overall positive momentum continuing into this fiscal year 2016 with a continued

ramp up of aluminium smelters and expected start-up of Goa Iron ore operation, and again that

was helped by Indian government with recent announcement by the finance minister to lower

the export duty on low grade iron ore from 30% to 10%.

Financially, our EBITDA was impacted by the decline in Oil prices, but we did achieve strong

free cash flows post CAPEX of US$1 billion, and reduced gross debt and net debt by about

$600 million in the second half of the fiscal year. For the full year, the net debt increased as we

increased our stake in subsidiaries, Vedanta Limited (previously known as Sesa Sterlite) and

Cairn India during the first half of the Fiscal Year 2015. Even with these stake purchases in the

first half, our overall gross debt for the full year reduced by $200 million.

We have recorded, as you have seen, a one-time non-cash impairment charge of $4.5 billion

net of tax largely related to Cairn India acquisition goodwill on account of a steep fall in crude

oil prices. Of course, our CFO, Mr. DD Jalan will talk about this in detail a little later, but

again, please recognize, this number is higher than that announced a few weeks ago by

Vedanta Limited, mainly due to difference in accounting treatment between IFRS and Indian

Generally Accepted Accounting Principle.


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We announced the final dividend of 40 US cents per share, taking the full year dividend to 63

US cents per share, up by 3%, reflecting our commitment to progressive dividends and

shareholder returns even while we deleverage of the balance sheet.

On the Cairn India tax matter, the Group is pursuing, as we said, multiple legal options and we

filed a notice under the UK-India bilateral investment treaty and moved to the Delhi High

Court.

At Copper Zambia, the government has announced intention to reduce the royalty rates which

were earlier increased to 20% for open pit mines and 9% for underground mines. We are

encouraged by this government’s decision and remain engaged with the government to have an

enabling and stable fiscal regime in Zambia, which we believe is required to attract continuous

investment in KCM and the entire Zambian copper belt.

We have continued to make strong progress on our strategic priorities over the past year. The

volumes are ramping up across our businesses, iron ore production at Karnataka has started,

and the idle Aluminium & Power capacities are being progressively brought on line. We will

continue to focus on the expeditious ramp up of new Aluminium potlines, the Chotia Coal

mine, EOR and gas production at Cairn, and underground production at Zinc India, again,

apart in addition to continuing to participate in government auction processes for developing

new captive coal and new captive bauxite mine. At KCM, we are focusing on reducing costs

and improving production at Konkola to generate positive cash flow.

We have optimized OPEX & CAPEX across our businesses and reduce gross debt by $600

million in the second half fiscal ’15 and overall 200 million in fiscal year 2015. We will

continue to focus on maintaining positive free cash flows, effectively refinance upcoming

maturities, and reduce the net gearing in the medium-term.

We have been able to achieve substantial synergies and savings from the consolidation of

group structure and remain focus on delivering the $1.3 billion of identified marketing and

procurement savings over the next four-years, a small part of approximately $50 million which

were delivered in this fiscal year.

Over the last year, I have seen that Vedanta runs a very tight ship on costs and we have been

very good at negotiating individual deals; however, sometimes I think holistically we have not

always recognized the full benefit over the long-term or taken full advantage of that supply

chain. So we have really emphasized a new concerted effort on procurement and marketing,

aimed at consolidating our marketing power and applying all the individual skills in these

businesses collectively for the benefit of the entire group. And that is how we get this

procurement and marketing savings.

We are also at the tail end of our committed construction and CAPEX, which is down by 50%

year-on-year; and while we are looking a growth CAPEX for Fiscal Year 2016 which has been

reduced from $2 billion to $1 billion. We will be disciplined on any further capital investments


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and allocate capital only to those projects that meet our investment and return criteria. Of

course, as I said a few months ago, we will continue to evaluate various options to further

simplify the group structure for the benefit of all stakeholders.

As I said, we did see a substantial decline in fatality this year and improvement in our water

and energy consumption and continue to work for preserving our licence to operate by adopting

world-class sustainability standards and practices.

This year Zinc India had a gross addition of 1.1 million tonnes of Metal-In-Concentrate to

Reserves and Resources. The Gamsberg Zinc project was approved and the construction will

commence in the second quarter. We will focus on the phased development of Gamsberg and

identifying next generation of resources at the Barmer Hill Oil and Satellite Field. We have

recently formed a central exploration group on the metal side of the business to achieve

synergies in exploration across the businesses and of course stay of rest of the latest exploration

methodologies and technologies, and have proved our overall ability to engage with the Indian

government to get those so important tenements so we can do the exploration.

Vedanta’s diversified business model and low cost portfolio of assets gives us resilience to

manage the commodity markets volatility and certainly as we are witnessing now.

We have been consistently generating industry leading EBITDA margins due to our suite of

world-class and low cost assets in Zinc, Oil & Gas, Iron Ore and everywhere else. As we know,

EBITDA margins are a function of all for the commodity prices, and our EBITDA margins did

decline through the Fiscal Year 2015 in line with the fall in the commodity prices. We are

focused on optimising our costs to maintain our margin leadership. Our Aluminium and Power

assets are currently operating in the second quartile, and have positioned to significantly

improve their costs in contribution to EBITDA, as we ramp up the new capacities and build the

captive raw material captive linkages. Similarly, at Copper Zambia, we are taking specific steps

to reduce the operating and fixed costs as we also focus on improving our production volumes.

In line with our focus on shareholder returns we follow the progressive dividend policy and

since the IPO we have consistently maintained that.

This chart shows the underlying production growth of the group since Fiscal Year 2004 in

copper equivalent terms. We have grown at a rapid pace in last decade and are poised to

maintain this industry-leading growth rate as our capacities in Aluminium, Power, Iron ore,

Zinc and Silver ramp up in the next few years; amounting to copper equivalent growth of 66%

over Fiscal Year 2015. Let us emphasize this is a capital-light growth plan. The majority of

investments have already been made in these low cost assets and hence we expect substantial

contribution to EBITDA and cash flows from this production growth with minimal incremental

capital requirement.

To the extent, we are making new investments, as I said like at Gamsberg or in our Cairn Oil

& Gas business, we are doing it in a prudent and phased manner with the focus on return. And


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we are retaining the optionality from further Brownfield growth as opportunities and markets

permit.

Like to talk now a bit about India: The reform agenda of the new Indian government helped by

the drop in oil prices has created a positive environment in India for investments and the

growth to pick up in India. Greater headroom for interest rate cuts, passage of Insurance, Coal

and MMDR bills and the government’s focus on disinvestment program, including financial

inclusion, infrastructure funding and the ease of doing business have led the IMF and the

World bank to revise India’s GDP growth outlook to 7.5 % for 2015.

Specifically, the priorities outlined by Government of India in terms of giving a boost to

manufacturing through the “Make in India” program, Housing and Electricity for All, Building

of Smart Cities and Improving the Rail and Road Connectivity, certainly augur well for Metals

and Energy consumption in India.

India’s recovery is still in its early days, but it is encouraging to see from our businesses, a

10% domestic demand growth if you include the scrap imports for some of the products that

we do produce in India.

In terms of the regulatory side, the development agenda of the Indian government will be

successful when complemented with balanced, transparent, and stable policy formation. Over

the last year, we have seen a series of positive steps taken by the new Indian government.

Specifically, related to our business, a new gas pricing policy has been approved and approvals

have been granted for Raag Deep Gas project, the BALCO 1200 MW Power Plant, and

Karnataka Iron Ore Mining. The mining leases at Goa have also been renewed and export

duty, as I said, reduced to 10%.

New legislations on the allocation of Coal and other Mineral Resources through transparent

auctions I think help in the speeding allocation of the resources and break some of the logjam

that have held back the mining sector for good part of the past 5-10-years.

For the steps taken now so far have been welcome, some actions have the potential of

hindering the positive mood and increasing the interest of investors in India. Relevant

examples include from Vedanta first the approval of successful auctions but then the

disapproval of a successful bid that we had in one of our coal auctions despite it being well

above the reserve price. And again, within MMDR law being passed, which will open up for

future auctions, we also saw with that a much higher royalty than seen anywhere in the world,

and, of course, we continue to be hindered by retrospective taxation claims in Cairn India, and

that is impacting and dampening the overall sentiment of investments in India, until that itself

is resolved.

I Move to Zambia, the government has eased the VAT refund procedures in exports and

announced the intention to reduce royalties, thus creating an improved business environment.

And with that now I hand over to CFO Mr. DD Jalan to go through the financial review. DD?


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DD Jalan: Thanks, Tom, and Good Morning to you, Ladies and Gentlemen. I am pleased to share a good

set of results in the backdrop of a challenging business environment as we go through a low

commodity price cycle. Oil price, for instance, has dropped 50% from the beginning of the

year to a low of $55, though we have seen the recovery in the last few weeks to $65/barrel.

Iron ore and copper have also fallen steeply albeit some recent recovery in the latter.

Given the background, the Group generated $3.7 billion of EBITDA for the full year, and

though down 17%, margins on a full year basis remain robust at 38%. EBITDA without one-

off charges in exploration and provisions for doubtful debts would have been around $3.9

billion. Market sentiment is better from a quarter ago, with a general recovery in the

commodity prices. Brent is at $67 and Zinc at $2350. Further, we are uniquely positioned with

significant ramp up plans in the Aluminium during FY16, some of which already in progress,

Iron Ore, and power plants commissioning in progress, all of which do not need further

CAPEX spend. These will contribute significantly to healthier FY16 numbers.

As you can see our focus on cash has been sharper in this environment. We generated a billion

dollar of cash for the year despite tougher price environment. CAPEX was curtailed at $1.5

billion, we pulled back and have further announced CAPEX cut for FY16. Gross debt reduced

by about $200 million for the year which demonstrates our commitment to deleveraging even

in a tough year. The net gearing remained at around the same level of 34% as of half year;

however given the non-cash impairment charges has ended at above 40%. We continue to

target a 25% gearing ratio in the medium-term.

We remain committed to a progressive dividend policy by recommending a full year dividend

of 63 US cents which represents a 3.28% increase over last year and a yield of 4% on the

average share price of the year or 6% based on yesterday’s close.

Moving to Slide #14: Despite the tough operating environment, we exercise control over our

controllable costs. We must note that ‘regulatory headwinds’ in form of higher royalties due to

the new MMDR Act and Coal scenario which worsened during the year as coal auctions from

the government companies dried up, impacted our costs adversely. We had to either buy power

or import coal, both of which cost us nearly $200 million. Oil volumes were lower on account

of planned shutdowns early in the year. However, we see room for improvement as outlined at

the Capital Markets Day with our intention to drive multi-million dollar cost savings through a

dedicated procurement and commercial savings program, which we have kicked off internally.

We have realized about $50 million of these savings in FY’15, which is included within these

larger headwinds.

Moving to Slide #15: Amortization was lower following lower volumes at Zinc International

and marginally lower at Cairn. Depreciation was lower in our Oil & Gas business and also

driven by a reset of useful lives of our assets on the back of an independent technical study.

While this is the new norm, assets being commissioned in the coming year, may push that

charges up, but will be more than offset by lower amortization next year being the result of


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impairments, leading to lower asset carrying values. Thus, we expect the overall depreciation

and amortization bucket to be marginally lower in FY’16.

We did well both on investment revenues at 9.3% return post tax as well as finance cost at

7.5% p.a. with the former benefiting from gains on MTM on bond-related investments as

interest rates eased out in India, driving yields down and the latter reflected in the lower cost,

refinancing we achieved on about $2 billion rupee denominated project loan as well as a few

other term loans at Plc. We have lined up several more initiatives to optimize our finance cost

and expect to contain the cost at around same level despite the recent increase in credit

spreads.

The tax rate without special items was 32%, slightly higher than our expectation early this

year, driven by higher deferred tax charges on exploration and other spends, compared to 13%

for FY14 which had the benefit of a one-time tax credit resulting from the restructuring

exercise. The rate for FY16 is expected to remain stable around the current level.

Special items included a significant non-cash impairment which I will cover separately on the

next slide.

Underlying attributable loss (without special items) was $39 million primarily driven by lower

EBITDA.

Moving to Slide #16: We took a $4.5 billion net of tax one-time non-cash impairment charges

of fixed assets primarily triggered by steep fall in oil prices. This also includes impairment of

Sri Lanka exploratory assets worth $788 million, given the commercial non-viability of the gas

find there. We have considered $60/bbl price in FY16 and increasing to $84/bbl by 2020 and

thereafter, an escalation of 2.5%. After the impairment charge, the lower carrying value on

books also results in a reduction in the amortization charge by about $350 million p.a. going

forward. We are fully in compliance to financial covenants with sufficient headroom. I would

also like to emphasize that the impairment charge does not affect our operating or earning

capacity.

KCM underground asset at Nchanga suffered a small impairment of about $52 million due to

unviable production at its upper ore body. You will note that the impairment number here is

higher than that in Vedanta Limited due to differences in accounting treatment between IFRS

and I-GAAP, the former requires fair value upliftment at the time of acquisition on 100%

basis, whereas the latter showing a consolidation upliftment limited to our equity shareholding

of 59%. This was also flagged in our Vedanta Limited release last month.

Moving to Slide 17: Our debt maturity profile is fairly well spread, with an average maturity of

3.1 years. At Plc we have already tied up $350 million through bank loans for FY16 maturities.

For FY17 maturities, we are in advanced discussion of term facilities with banks and also

evaluating the diversity and cost effectiveness of various sources of funding, and will make a

further announcement in the second half of this calendar year.


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Regards the Indian subsidiaries, half of the immediate total maturities of $2.4 billion relate to

short-term loans taken out in these subsidiaries at a relatively low cost to drive finance cost

down in the past, when longer term project loans had higher rate of interest. However, in

today’s expected lower interest rate scenario and abundant liquidity conditions in India, we

would be refinancing these through longer tenor instruments during the year in the domestic

market.

Overall, we are targeting an increase in average maturity by a year on refinancing. The

liquidity for the group remains strong with $8.2 billion of cash and cash equivalent along with

additional $1.2 billion of undrawn committed lines of credit. We are committed to

deleveraging further by continuing to focus on operations and CAPEX control.

Moving to Slide #18: Given the low oil price regime, we have revised the CAPEX spend at Oil

& Gas business downward, from $1.2 billion to $0.5 billion for FY16, though we are retaining

growth optionality for up to $1.4 billion when prices recover further, with better visibility

when more projects in our pipeline become highly attractive again. We have also re-phased the

Gamsberg-Skorpion project and revised FY2016 CAPEX spend target to $80 million from the

previous $250 million. Our full year growth CAPEX target now stands at $1 billion against $2

billion previously announced.

Moving to Slide #19: To conclude, we believe that our strong focus on generating healthy cash

flows from operations, discipline around CAPEX, driving volumes, minimizing costs and

further group simplification are the fundamental financial pillars around which we will

continue to strengthen and deliver. This in turn will drive return to shareholders and allow us

to maintain our progressive dividend policy.

Thank you and with this let me hand back to Tom.

Tom Albanese: Thank you, DD. Starting with Oil & Gas, average gross production for FY2015 was lower at

211,000 boepd, largely on account of planned maintenance activity in the second quarter at

Mangala Processing Terminal in Rajasthan. The production in Rajasthan has certainly

normalized after that production maintenance outage and Aishwariya field crossed a

production of 30,000 boepd in the third quarter. During the year, the offshore fields at Ravva

and Cambay also saw strong production growth.

Rajasthan OPEX for Fiscal Year 2015 was $5.8/barrel, higher on account of higher crude

processing cost and well maintenance cost, a lot of these involve with our EOR project. I do

want to draw your attention this has been on the very low end of the global cost curve.

In terms of projects, we achieved our first polymer injection at Mangala. We debottlenecked

the MPT fluid handling capacity, and completed the Mangala ASP project for a total CAPEX

spend of about $1.1 billion. The Management Committee has approved the Raag Deep Gas

Development Plan for 100 million standard cubic feet per day and work on execution, planning

and contracting is underway.


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As we said, we would, we achieved positive cash flow post CAPEX despite low oil prices and

the large CAPEX spend in Fiscal Year 2015. In March, we announced a revised CAPEX for

our Cairn business of $500 million for Fiscal Year 2016 to align the work program to a new

crude price environment. And at this moment, our efforts are currently focused on re-

engineering projects and renegotiating contracts to further improve the viability of future

projects as we consider them.

Despite the dramatic decrease in oil prices, Cairn managed to add gross 2P reserves of

approximately 16 million barrels of oil equivalent. Completed the testing of the drilled HIIP

and prospective 2C and seismic activity will be among our primary focus areas for exploration

in fiscal 2016.

Just again, as a reminder, our reserve reporting is somewhat constrained by the PSC term to

2020, and according to formal definitions, we cannot book reserves beyond 2020 at the

moment. But speaking about the PSC extension, we have actively been engaged with the

government and I am confident we will see an extension to 2030.

Barmer Hill and Satellite fields, although in the early stages of development, achieved an exit

production rate of 5,000 bopd. And over the course of the past year, we learned a great deal

about the Barmer Hill formation and reservoir, and our current key learning has been around

the productivity and the fraccability of various zones of this Barmer Hill formation. How we

can operate with horizontal versus vertical wells and the development concepts reach, and fluid

characterization. These learnings and the trial work we have been doing preparing us well for

the ramped up field development plan for Barmer Hill formation in the coming years, first

phase are likely to be focused around the Mangala and Aishwariya fields, and the second phase

we look at the DP and NL fields and in the third phase the V&V fields.

We plan to scale up the polymer injection to its full Mangala field capacity by the end of fiscal

2016 and we are evaluating EOR feasibility for Baghyam.

We are also set to expand our Natural Gas business. The RDG gas production is expected to

increase to 25 mmscfd during Fiscal Year 2016 from 16 mmscfd in Fiscal Year 2015. Overall,

in Fiscal Year 2016, we aim to at the minimum maintain the Fiscal Year 2015 Rajasthan

production levels of 176 kboepd, with potential upside with higher production from Barmer

Hill and Satellite fields leveraging the technology and certainly existing MPT

infrastructure.Zinc India had a year of record mined metal production and profitability. The

mine development rates over the years progressively improved better positioning ourselves

while ultimate transformation to underground mining.

Our costs remain in the lowest quartile and for Fiscal 2016 we expect the production to be

higher, although first quarter Fiscal Year 2016 production could be slightly lower than the full

year average. Costs in FY2016 will remain stable even as we go deeper in the mines.


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Meanwhile, looking at silver, our silver production is expected to improve to 350-400 kt in line

with the expected increase in mine production at SK mine.

We remain ahead of schedule with the expansion of the SK mine. The shaft sinking at

Rampura Agucha mine to extend the underground ore production to 6 mtpa is slower than our

original plan, so reinforcing contractor resources to speed up some of this work. However, the

preparatory work on the expansion of the open pit life to Fiscal Year 2020 has already

commenced. As I said before, this will de-risk the mined metal volumes as we transition

ultimately to underground of Rampura Agucha.

I talked a little earlier about the enactment of the Mines and Minerals (Development and

Regulation) Amendment Act, which does provide continuity to our mining leases to at least

2030, with Rampura Agucha lease extended till 2030, Sindesar Khurd lease till 2045, and the

Kayad lease till 2048. This Act also brings transparency to the grant of mineral concessions via

auctions and certainly will reduce any potential dispute. However, it can further increase

payments to the government by up to 100% of the current royalties on account of the proposed

contribution to District Mineral Foundation. Royalty rates for zinc and lead in India already at

10% and 14.5% respectively, which are the highest in the world and much higher as compared

to other base metals.

A significant additional effective royalty of up to 10% for zinc and 14.5% for lead can

potentially make several low grade and deeper deposits economically unviable and may

necessitate strategic reviews at some of the mines. As a consequence of this, we have been

actively engaging with the government and pointing out the disincentive for new investments

from such a punitive fiscal regime.

Moving to our International Businesses: At Zinc International, the production was lower

primarily due to lower production from Lisheen, as it nears the end of its scheduled life in

middle of Fiscal Year 2016 and the unplanned disruption of Skorpion due to fire incident in

January. And for the same reasons the Q4 COP was higher at about $1500/MT. The Fiscal

Year 2016 production is expected to be lower at about 220 kt as Lisheen ramps down and the

costs remain at current levels as the stripping ratio increases at the Skorpion to access some of

the new resources we found at deeper levels.

Before I move off Lisheen, let me remind you that since our Angola acquisition we have

extended Lisheen life by several years and certainly in this environment of higher zinc prices,

that is a welcome extension of that mine life.

We talked about Gamsberg and our 250 kt Gamsberg project CAPEX has been rephased and

we still expect to break ground by the end of second quarter with the first ore production in

Fiscal Year 2018. We now expect our Skorpion mine life will now be extended by another 2

years from Fiscal Year 2017 to Fiscal Year 2019 by again deepening the current open pit. And

the ore for this mine will feed the Skorpion refinery to Fiscal Year 2020 after which it will be

fed completely by the ore from Gamsberg with the installation of a roster at Skorpion. Again, I


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would like to remind you that the mine life for Skorpion was originally only expected to last

until 2015, so again, a longer mine life from the original Angola acquisition and certainly a

welcome extension to the mine life in the current positive sentiment in the world of Zinc

market.

Like to spend some time talking about KCM in Zambia: At KCM, the full year production at

Konkola was affected by shaft remediation work and lower equipment availabilities. However,

we are beginning to see some positive impact of the pivot initiative we previously talked about

and that we put in place about six months ago. We have prioritized mining of three of the six

sections at Konkola and reorganized our resources to improve productivity and equipment

availability. The last quarter of Fiscal Year 2015 did see an improvement in operational

efficiency and production at Konkola and we hope to build on these small successes in Fiscal

Year 2016 to ultimately reach the full potential of this unique ore body, where we have had

270 million tonnes of ore grading at a remarkably high 3% copper.

At Nchanga, the open pit and underground resources have been progressively depleting and are

now largely depleted again putting in context of the past several decades of very successful

operations, so we now have a series of legacy operations, all of them suffering from depleting

grades, high strip ratios and/or uneconomic costs of operations. So we can produce copper

units from Nchanga, but these are marginal high cost tonnes, and in some cases, net cash losses

making due to the maturity of the asset and those lower copper prices. So, as you would

expect, we are carefully evaluating the future of these businesses.

The Tailing Leach Plant at Nchanga continues to produce cathode from low grade stockpiles

and tailings the dam and to make sure we preserve the reliability of this operation, we have

recently prepared 12-month preventative maintenance plan for each major unit at the TLP

facility. We have also started treating of some of our COR bump rocks in addition to the LOB

ore to maximize the capacity utilization of these secondary recovery facilities.

Our Smelter custom volumes had remained constrained by blending challenges and the old

VAT regime as a consequence of not been able to bring concentrates in from the market. In

February 2015, Zambian Government amended the documentation requirements to reclaim

VAT on future exports. This is a huge enabler for us to increase our purchase and treatment of

third-party concentrate and thereby increasing the smelter utilization. We will continue to

remain engaged with the Government of Zambia in resolution of past VAT refund.

Speaking of the government of Zambia, government had announced recently the intention to

reduce the royalty rates which were earlier increased to 20% for open pit and 9% for

underground mines. We are encouraged by this government’s decision and remain engaged

with the government to have an enabling and stable fiscal regime, required to attract

continuous investment in KCM and the copper belt.

At KCM, we have focused, as we said we would, on bringing down our costs of operations

along with increasing volumes. Rigorous cost saving initiatives led by dedicated teams are


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being implemented relative to reduction of power usage, fuel, and chemicals consumption, and

repair and maintenance costs. As a result of these initiatives, we have been seeing some

substantial reduction in quarter-on-quarter costs on an absolute and on a unit cost basis and

that has been encouraging to the overall spend base.

At the current copper prices and with those cost reductions we are beginning to move in to

positive cash flow territory at KCM. This is a big improvement from where we were six

months ago. So I would say on balance progress is being made but still a lot of work needs to

be done in terms of ensuring that this large high grade resource can be sustainably producing

well and long into the future.

So we are confident of a better performance on production and cost in Fiscal Year 2016 and

this will be the start of the turnaround of this asset, although we do realize this will be a long

journey.

In Aluminium, we had a record level of production from the refinery and the smelters as we

started up the BALCO-II and the Jharsuguda-II smelters during the second half of the year.

The overall cost of production included the cost of production of the pots under ramp up was

higher at $1775/t due to higher alumina costs and again the coal e-auction costs, particularly in

the first half. Recently, we have been witnessing improvement in e-auction coal volumes and

softer domestic coal prices in line with international coal price movements.

On the metal side, the Chinese exports of Aluminium semis have been progressively rising

through the year, which as you know, has caused all the premiums to drop steeply from the

high seen in the first half of Fiscal Year 2015. And the recent proposal by Chinese government

to withdraw tax on Aluminium semi exports, if implemented, can also lead to additional supply

of Chinese material coming into the market, leading into further pressure on Aluminum

premiums. We are focus on increasing the percentage of value-add products in our sales to

protect our margins, and reducing our costs, particularly at BALCO.

Additional pots from BALCO-II and Jharsuguda–II smelter will be ramped up from May and

June respectively. Our production is expected to exceed 1 mt in Fiscal Year 2016 with a COP

of $1650/MT to $1700/MT.

The BALCO 1200 MW power plant is under ramp up and we expect to commission one

commercial unit and one captive unit of 300 MW each within the first quarter of Fiscal Year

2016.

Now, I will talk about some of our other but very important assets: First, on Power: The Power

Load Factor or PLF, at the 2400 MW Jharsuguda power plant was only 39% due to continued

lower demand and evacuation constraints of power from Odisha state. We do expect the PLF

to increase gradually as we start ramping up the pots at Jharsuguda-II smelter and make that

conversion, as we said, from IPP, CPP.


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At TSPL, the first 660 MW generator was capitalized in December 2014, and is currently

running at 85% availability. The second and the third units are expected to start in the first half

of Fiscal Year 2016. We do expect to have a margin of Re.1/unit once all the three units are

stabilised.

In order to create synergy among the portfolio of 9000 MW of power assets in total and build a

robust pool of technical professionals, we have recently created a power vertical within our

organization and appointed Ajay Dixit, a seasoned professional in the power industry, as CEO,

Power, he has joined us at the start of this week. He will have responsibility for all our power

plant operations as well as consolidating and centralizing coal purchase and consolidating and

centralizing our overall power sales.

In Iron Ore at Karnataka, the mining had started in February, as we said, with a production cap

of 2.3 mtpa, and we remain engaged with the authorities to relax this cap. We will begin sale in

the Q1 Fiscal Year 2016 under the e-auctions route set up by the Karnataka government.

At Goa, the interim capacity of 5.5 mtpa of saleable ore has been granted to us and the export

duty, as I said, on low grade iron ore has been reduced from 30% to 10%. We do have some

local approvals and a number of these to get still before we can resume the mining and

probably and we do have those completed until the monsoon season starts, so realistically, we

hope to be ready to start mining after October after the end of the monsoon season. We are

very mindful of the low seaborne iron ore prices, but we do believe that with lower costs, and

lower export duties, we can mine with positive cash margins without having to spend any

capital.

At Copper India, our copper smelter at Tuticorin had a record production run taking full

advantage of the higher TC/RCs and higher sulphuric acid prices. As most of you probably

know, the global TC/RCs for Calendar Year 2015 were higher and they were settled at a higher

level compared to the previous year calendar year 2014 and we expect to receive around USc

24/lb for Fiscal year 2016.

I would like to summarize: Our strategic priorities remain unchanged. We are focused on

sustainability, disciplined capital allocation to zinc and oil & gas, driving operational

excellence, ramping up production and generating free cash flows to continue deleveraging. As

the Chairman said, we, of course, remain committed to our progressive dividend as today’s

results reinforce.

As I said at the Capital Markets Day a few months ago, over the next year, further group

simplification will be an area where I, the board, and management will be putting greater

focus. We will continue to evaluate various options to continue to simplify the group for the

benefit of all shareholders and all stakeholders. And we are mindful that any simplification

exercise will be complex and we will need to have the support of all our stakeholders including

the minority shareholders, which includes the Government of India and need the approval of

regulators in India and the UK.


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Looking ahead, we have considerable optionality for growth in our Oil & Gas business and

focusing on developing this and our other businesses for the next-generation of resources. In

Oil & Gas, as I said, we see potential of additional resources and further growth of Barmer Hill

and the gas field.

The commodity prices are starting to look up, again, as we said a year ago, but they are starting

to look up again now, and we are much better positioned particularly given that the stronger

markets of our position, notably, Brent, Aluminium, Copper and Zinc. With continued focus

and momentum on improving production and costs, we aim to continue delivering superior

returns of our shareholders, and again, what matters this market, deleveraging and rising

dividend.

To conclude, one year on as chief executive, I am seeing progress on the priority as I had

originally set out, which remain the key priorities as we look to the coming year.

So with that, thank you. I would like to open the floor for questions.

Ashwin Bajaj: Thanks, Tom. We will take questions from the room first and then from the telephone line.

Liam Fitzpatrick: It is Liam Fitzpatrick from Credit Suisse. Three operational questions for you. On the

aluminum psyche, you just clarify, you are aiming to or under commissioning is half of the

1.25. How much of that is guaranteed and what are the risks, can you please give an idea

around the timing? Secondly, just on KCM, you are guiding to quite a big drop in costs in

FY16, it does not look particularly like it is volume-driven, so what is driving that? And then

thirdly, just on the zinc royalties, what sort of visibility would you have on those going

forward and how do you budget for them?

Tom Albanese: I will make a couple of comments on your questions, I like the aluminum, maybe ask Mr.

Abhijit to talk about our ramp up plans at BALCO and Jharsuguda, and the risks and the

opportunities for those, Steven Din is on the line, and I would like him to talk a bit about our

trajectory so far which as you say has been more focused on costs, but I also just want to point

out that we are moving out of some of the areas of marginal production, so as we focus on

increasing our production in areas of Konkola pit, we are also reducing production that would

have been as loss-making in the past, and then I think since Mr. Akhilesh Joshi, our Chief

Executive, Hindustan Zinc, has been actively involved in some of the discussions at both the

State of Rajasthan level and the federal level, he can talk about where we are on the MMDR

royalties for Zinc. So maybe we can start with, Abhijit, if you can talk about where we are on

the BALCO-2 ramp-up and the commissioning of the 1200 MW power plant, the TPP

component in particular, and then the steep ramp up plans that we had talked about for

Jharsuguda-2.

Abhijit Pati: Thanks Tom, and Good Morning, Ladies and Gentlemen. I think so far as the ramp up is

concerned for the Aluminum asset, first of all, the asset base of around 2.3 million tons of

capacity of Aluminum is already on ground. What we have done in the last year, we have


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produced around 0.8 million tons combined together with BALCO and Jharsuguda, and this

year our plan is there, out of 1200 MW, 300 MW of EPS is up running into the reliability

mode now. CPP another 300 MW is on card. So we intend to start sometimes at the end of this

month beyond 84 pots of BALCO-2 ramp up, and obviously, we will take on to the full line

commissioning in this year, maybe we will complete somewhere into Q3 of this particular

year. So far as the Jharsuguda is concerned, in the last year as Tom as indicated that we have

done the first commissioning of the metric-2, wherein after running around 90 pots now of the

first pot line, we intend to ramp up 2 pot lines in this year, so that this combined together of the

volume of around 1.4 million tons should be the projected volume so far as the ramp up is

concerned in the aluminum sector. So, we are confident there is no such struggles except in

Jharsuguda, there are some amount of the regulatory clarifications, which is going on, and that

is the reason you are seeing a slow pace of the ramping up as of now, but we have other plans

already in place to intensify the ramp up sometimes from the Q2 onwards and to complete this

entire ramp up by this financial year. That is something overall from the ramp up side of the

Aluminum.

Tom Albanese: Thank you, Abhijit. Steven, would you want to comment on the points about focusing on costs

so far and what we have been doing on the production side.

Steven Din: Yes, of course, Tom. Thank you very much, and good morning to everybody. On the drop in

not only the absolute levels of costs, but also the unit cost of production at KCM, there are four

areas which are contributing to this; the first area is that basically we have been having deep

dives on each of the operations with the technical people and also with the commercial people

to see where we can drive operational efficiencies. So we have been able to reduce

consumption levels of key chemicals in the concentrators and in the leach plant, as well as just

driving some more operational efficiency towards benchmark and theoretical levels. So, just by

engagement, we have been able to achieve a significant reduction there. The second area is

obviously related to the reductions that we have seen in the oil prices in the market, and our

procurement department has focused on other hydrocarbon derivatives and look to see where

we can get reductions in the contract prices, that has also contributed. One of them is the area

which you mentioned Tom, where essentially we have been looking at all of the activity across

KCM, previously we had 10 sources of copper, and we look to see which ones of those 10

sources were actually losing money. So steadily since last November, which started off with

the suspension of the upper ore body at Nchanga, we have been taken out the loss making

areas, which is obviously reducing to lower copper, but is actually increasing the profitability

of the business and the positive cash generation possibilities. And then on the fourth area,

which is very much our focus around the Konkola mine ramp up, we have 6 sections of the

mine and we have now since the beginning of the year taken out two of those sections which

are the post and pillar mining metal sections to look to see whether we can increase the

extraction rates and then increase the levels of profitability. There have been two premises

given to each of the operations as we have been working as a senior team very closely with the

operational teams, that first of all any reductions in cost must not affect our safety performance

and must not affect our future ability to produce. So very much trying to see where we can


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reduce the levels of fat as opposed to cutting into the muscle. So that is on the cost side. On the

production side, once again a lot of focused efforts and intervention across the business, in

particular, at Konkola, where we are looking to increase the levels of production from the

40,000 tons of copper that we have had in financial year ‘15, to close to 60.000 tons of copper

in financial year ‘16, and those are very much related to initiatives around clearly finishing of

the shaft remediation work, looking to see how we can debottleneck areas on the haulage

levels, but more importantly, to focus very much on increasing the equipment availabilities

from the current 55 to 60% up to the 70%. So I think it is a combination of cost management I

would say as opposed to reduction and also production increases. We have seen the benefits

come through already sustainably now on the cost side, and now we are very much focused on

getting that production input as well. I hope that helps.

Tom Albanese: I would like to just maybe point out that on the shaft hoisting, one of the things we looked at

quite carefully would be the sustainability of the shaft facilities during the course of the past

year and that caused us to take the decision to do some additional remediation of shaft-3, and

shaft-1; shaft-3 had been completed, shaft-1 is probably under way, so we resume partial

hoisting in shaft-1, and then shaft-4 will require again limited operations until we complete

that, till December of this year. So that has affected production, but I think those are the right

things to set up the hoisting capacity to allow us to focus on Konkola on a going forward basis.

Maybe Akhilesh, if you can comment on how you see the discussions going with regard to

both the zinc royalties and any of the foundations that could be topped up on that royalty

burden.

Akhilesh Joshi: Thank you, Tom. Good Morning, everyone. We know that MMDR amended Act is effective

from 1st January 2015, where it says that District Mineral Fund up to the 33% for the new

mines and up to 100% for the running mines will be effective and also 2% will be the national

mineral trust fund will be there, 33 and 2% of the royalty. For the new mines actually generally

what happens is that all the royalty rates are applicable from the date of notification. So for the

District Mineral Fund still there is no notification. So we hope that whatever the notification

comes it will be effective from the date of the notification, which generally happens in case of

the revision of royalties. As far as our views on the district mineral fund is concerned, we have

had the opportunity to discuss with the Mines Minister, Mines Secretary and Joint Secretary,

where we have put our point, particularly the mines which are deep and low grade and also the

mines which are underground where we have the very marginal profit. If we put that 100%,

then it will be very detrimental to the development of those mines and investment in the

country. So we have put our point, they have understood, they have got convinced also, but

still we do not know what will happen and when they will issue the notification, but I think

that within next month we will have the new notification and government will consider. We

have also approached through different organizations like FIMI and CII to put our point that

how it is going to affect the mineral industry in the country.

Tom Albanese: Maybe I will just make one comment about taxes and royalties in general. I do not think you

could find a country in the world, which is not trying to find some way to increase its tax and


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royalty take of the mining or the extractive sector and it is a constant, constant dialogue and

debate about balancing legitimate government needs for increased receipts and they are here

now to cover their needs, but also provide a mechanism that the investment continues to be

made because again even in cyclical kind of businesses as ours, for mining industry to stay

robust and sustainable, the operators need to be incentivized to make those investments. That is

the essence of our conversation at the state and central level. You heard me say that before.

Jatinder Goel: Jatinder Goel from Citi Group. Two questions on power: Firstly, on the new CEO

appointment, does that mean that even the captive power will be treated as a profit center, i.e.

you will be selling captive power at market prices to the respective divisions, otherwise how

would you measure or what is the incentive to drive the cost lower at the captive power just

from measurement point of view? And secondly, there was a talk of listing the power business

separately I think a few years ago. Do you think it is still an option in the hands of the group?

Tom Albanese: Maybe I will make a comment about power in general, and then also in measurements, because

I think you make a very-very good point that if you do not measure, you do not create

incentives, you do not get that performance. And as we have brought a new CEO in, I have had

quite a number of engagements on an interim basis and then we will be following in terms of

what the model will look like effectively between the Power business and the Aluminum

business, so that we incentivize the Power business, but we do not put it undue burden on the

Aluminum business, and it has got to be something that is seen, no different than when you are

running aluminum refinery and aluminum smelter, how do you create the incentive for that to

take place, and again, sometime, the internal measurements are different than what the external

financial reporting for that would be, but you can be assured that the new CEO of Power will

have in his own performance assessment and the team performance assessments, a unit cost

delivery target and some transfer pricing mechanism that would be seen as the equivalent of

fair market transfer mechanism. Maybe Mr. Roongta you can talk about Power a bit, but before

that just a comment at this stage, our intention is to maximize the full value of our fleet of

power generating assets of 9000 MW, most of them are in Aluminum, and those are split

between IPP and CPP, but we have also power assets within the other business units, that we

also want to have what I would say consistent O&M philosophies, a single career path for

operating professionals. So we can attract one of the biggest non-state owned power generators

in the country. So we should be easily attracting the best and brightest of the power engineers

in India for that business to be able to be on the cutting edge of new technology. I think we

have the opportunity to centralize and consolidate 24/7 conditional monitoring, 24/7 power

sales. We could have a separate sales training desk in that type of environment. So what I

would do is first and foremost is focus on optimizing that business and getting the maximum

leverage of 9,000 MW of power and then separately down the road we can ask what is the

proper ownership of that, and what is the proper capital structure of that, after we have made

that business transformation.

Anil Agarwal: In the meantime, we have no plan, we had plan in the past, we have worked, but we realize that

it is important to look at overall position, and to remain as an integrated part of power as with


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Aluminum, and with Vedanta Limited, so we have no plan at the moment to go ahead with any

of the power company to be listed.

S.K. Roongta: Thanks, Tom, I suppose Jatinder’s points have been well covered in your reply and also what

Chairman has said, and our priority remains to use our assets fully and improve our PLF

through utilization in our smelter as well as improving our power sales, so that we are able to

use our power assets fully. That is our topmost priority right now.

Tom Albanese: Which has been effected by low PLF because of evacuation capacity constraints, with all the

other things going on in India, you are going to see an increase in train power transmission. So

what we need to do is, we should not feel that being hobbled by evacuation capacity now, will

mean that we will be hobbled by evacuation capacity in the coming years, it will come, and we

have to make sure that our plans are not perpetually in the low PLF, but as that capacity comes,

we will be there for it.

Mano: This is Mano at Morgan Stanley. Three questions: First on the regulatory tailwinds, and the

headwinds, Slide #14, the company clearly shows that 200 million headwinds from the

regulatory changes. How much is the effect going to be of that in FY16, and what additional

regulatory impact can we expect in FY16, that is not in this 200 million figure? Secondly, we

talked a bit about it in March, on Page #26, you have the very helpful flow chart from revenue

to EBITDA per tonne of aluminum. So about $790 of alumina, are we any closer to securing

bauxite there and therefore driving up own alumina, and at a stage where you can give us some

indication of how much alumina cost per ton can come down, so what the earnings power

could be in two years’ time, for Tom? And finally on Nchanga, obviously, the slightly painful

situation of how is the progress in reviewing Nchanga, talk to the government in trying to find

exit that works for both parties?

Tom Albanese: I think maybe DD you are best to opt a comment on the Slide #14, Regulatory Component of

the 301, and I would then ask Mr. Abhijit to talk about the process for reducing our effective

cost of alumina, but Abhijit, it is not only getting access to bauxite, but where are we in terms

of the ramp up of the existing Lanjigarh refinery and the approval processes that we would

expect so that we can ramp that up, and give us then the ability to produce more alumina from

our own facilities, and then I think Steven may be recognizing, off course, many of the

sensitivities of stakeholder dialogue around jobs at Nchanga, we will talk about the types of

engagements we are doing. So maybe DD?

DD Jalan: Basically, I think most of the impact of new MMDR Act changes on our Hindustan Zinc

business, and as Akhilesh was saying, that the new levy is going to be effective from January,

but the rate of levy is yet to be notified, and as of now we have made a provision for 33% of

the royalty as a levy, and given that impact as of now one-third of the levy is provided in the

books of accounts for the first quarter and then basically next year it is going to be multiplied

by 4, based on the rate what we have decided. So as of now I think we should be awaiting the

announcement of the new levy which is going to be announced pursuant to the effort what

Akhilesh talked about.


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Mano: In the 200 million, the company has budgeted 33% of the royalty as cost?

DD Jalan: That is right.

Mano: Are there any other numbers in here beside the MMDR, zinc royalty or any other figures in

here.

DD Jalan: These are the two numbers over here; zinc royalty and the MMDR district contribution to the

DMF.

Mano: How much is that worth?

DD Jalan: Just to answer the breakdown of $200 million, it is royalty at Hindustan Zinc $56 million, that

includes the contribution to District Mineral Fund and then increase in royalty at KCM, that is

$15 million, and the third piece is coal and power as Tom also mentioned about, that is about

$130 million.

Tom Albanese: I would want to comment in that number, the balance of the number, which is the 301 less than

200, that also reflects the countrywide higher cost of coal and the e-auction restrictions which

while we put in the category of uncontrollables, was somewhat of an effect that everyone that

was buying coal in India during the course of the year was affected by it.

Mano: And that is a reverse in FY16?

Tom Albanese: We saw that changing from the first half and the second half. I hope to see it continuing to stay

on the right track as we continue this fiscal year. We had a question to Abhijit on the Alumina

and the 796 number in the discussion of our margins for Aluminum.

Abhijit Pati: I think first of all, hats off for this thing, so first of all, there is basically very strong driver in

this financial year which we are driving, as you know refinery capacity is getting to around 1.7

million tons, that is the level, last quarter of the last year we were at a level of 1 million ton,

moreover, two positive drivers which is coming in this year is our laterite and part of the

domestic, the bauxite which is coming to the system. So roughly around 41% of our domestic

sourcing and also we have certain percentage of our import. So if you really look into the

transition of the cost of the alumina from the last year, where Tom indicated around $1755 of

the cost of metal, I think we are around $719 to $720 of cost of alumina. So this year with the

increase into the production capacity plus a certain amount of improvement into the efficiency

factor, and also sourcing of the laterite and domestic, this year, I think we are budgeting

somewhere around $630, that is the level we are migrating from the cost structure. Moving

forward, another two years down the line because whatever the new positive MMDR Act, and

the type of the e-auctioning process which has been quite active in the state as well as the

center so far as the bauxite is concerned, I think two years down the line when we have 100%

of the bauxite, which is sourced from the Odisha level where our refinery is located, I think we

should be in a position to go down to $200 to $220 per ton of Alumina, resulting into roughly


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around $440 per ton of Alumina. So that is the migration which we were talking about. So this

will be the significant move so far as the cost of the Alumina is concerned and in our full

capacity of ramp up two years down the line, we are targeting to reach around 2.3 million tons

of Aluminum base. So this is related to the overall Alumina cost structure, how it will get

migrated with the laterite and bauxite deposit coming in with us.

Tom Albanese: Abhijit, if I could just add to that, I think it is important to recognize that with the MMDR

auctioning process, the auction proceeds effectively remit to the state, so the states are

incentivized to move through this auctioning. So I think that is one of the things I think is

going to be encouraging for seeing bauxite development in Odisha, will be with that auctioning

being…we saw the coal auctions, they go to the states, and benefits the states, primarily they

are incentivized to get these going, and just as a reminder, we have lots of bauxite

opportunities in Odisha, and I think that we can show and in the laterite we have proved it, but

we can show, we can do this in a way which is meeting any of the stakeholder issues and those

natural sensitivities that are there, I am not concerned about that, because there are lots of

opportunities and we will find those solutions, but we have Steven Din on Nchanga.

Abhijt Pati: This particular year we are talking about $640 as the cost of the alumina in our overall cost

structure of alumina and when we have a 100% source of the bauxite from Odisha, where our

refinery is located, we should be left to source around $200 to $220 dollars, that is per ton of

alumina, if you convert into metal, it should be around $440.

Steven Din: There is much three legs to the stool that we working on as part of the KCM business; the first

one is very much as we spoken about the Konkola to ramp it up, to the right levels of

production, and to keep it profitable; and the second one is to increase the utilization of our

smelter business, by accessing a third-party concentrate as well as our own from integrated

production; and the third one is very much to look at productivity levels at Nchanga, and for

those of you, who are not aware with Nchanga, it is a very large footprint operation which

previously over the last 70-years has been a very profitable open pit operation and

underground operation. But now with the declining grades and having to mine deeper, it is

very much marginal business, but it does have a large work force. So, this is an area that we

are looking in parallel with the other areas to increase productivity and we are working very

closely with government, in particularly the Ministry of Labor, and the Ministry of Commerce

to look to see what solution we can find together to be able to potentially redeploy or even

retrain a large part of that workforce, and an area that we are focusing on because it is going to

present possibilities to be able to take on large numbers of the work force is developing

projects outside of the mining gate, and possibly focusing these in the areas of agriculture or

industrial zones which will support the rest of the copper belt. But these projects are going to

take time to crystallize, they are going to take time to actually get the buy-in from the various

stakeholders and we could be looking at two-three year time horizon to actually get the proper

redeployment levels into those projects as well as get into the projects up. So, it is a sensitive

area. It is not something that we are just leaving to one side, we are working on actively at the


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same time, as keep in the other levels that the other projects annualizing the project ramp-ups

work in moving ahead.

Tom Albanese: In bottom line, all mines have their day and all we can do is be sensitive through the

individual, the union, the community and the government stakeholder interest and create

transition solutions that work both from a community perspective and employment

perspective, but also ensure that that is business viable and can attract future capital

investment. This ultimately that is what the copper belt needs.

Anubhav Anubhav from Deutsche Bank. Two quick questions: When we saw your mining in Goa, you

have given an interim capacity of 5.5 million tonnes per annum. How does that work in terms

of when that can step up, what is the timeframe, what is the condition upon that? The second

question just to remind, how much VAT you are owed by the Zambian government in terms of

past refund?

Tom Albanese: I will take the first question, maybe Kishore, if you have any additional commentary on the

processes for that, and then maybe DD and Steve, you can cover the VAT issue. On the Iron

Ore, there is a cap that is currently in place of 20 million tonnes for the District, it is likely to

be increased here in the foreseeable future. We have an allocation of that 5.5 assuming that all

the other producers that were producing before the shutdown restart at that time. That would be

why I am assuming the 5.5 as our capacity. These are the mines that are actually ready to do.

So there is no new mine development, it is just that basically literally turning the key and the

trucks and begin the delivery. So I would see the ramp up from an operational perspective as

expeditious. I think at that time depending on the iron ore markets and depending on the cost

structure by those on the Goa district, we may find that not all the previous operators choose to

be operators in this low seaborne environment and we would certainly in that case be seeking

to expand a larger allocation of the 20 million tonne cap, while we would be working with

government to make a case why that 20 million tonne cap we think should be raised. So I see

opportunities for sequence of chances to increase our tonnage have whatever cap is imposed at

that point of time. Ultimately, the cap is going to be driven by how well can we and the

industry manage road traffic in the communities, how well we can manage the environmental

and the various stakeholder issues…and I believe that certainly from our perspective, I know

Kishore is spending a lot of time with the other operators to recognize that we all have a

combined self-interest to resume operations in a way, which has seen a sustainable.

Kishore Kumar: Thank you, Tom. I think you have answered the most of the needs, but I think just to add a

couple of points is that for ramp up of the 5.5mt that is also a need that the existing stocks

which were there before the mine was closed, those stocks also liquidated, so the e-auction

process has commenced in this state, so, that the good news from Goa that they are trying to

liquidate the existing stocks lying on the ground. And the second one is the Supreme Court

Monitoring Committee, who has been on the ground for the last six months, they have

submitted their report and that report is going to be read post the holiday season of the

Supreme Court and that is when likely we will hear about the new limits that could be


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announced. So both these things are going concurrent, and as Tom has mentioned ramp up of

5.5 mt would be just after the monsoon is over.

Tom Albanese: DD, do you want to start on the T&M and then may be Steven if you can talk about the

discussions you are having at the government level in terms of the importance of the HC

recovery?

DD Jalan: The total amount I was sending is somewhere around $160 million, this amount of course has

been reduced because of the depreciation of the quarter. Steven, maybe you can talk about the

recovery prospect and recovery schedule of VAT amount.

Steven Din: We are looking at the VAT very much in two parts; the backlog of the VAT, as you say, DD,

is around about $160 million, but there is also an amount which is outstanding if you like after

the VAT rules were amended in February of this year. So, as well as the other operational

areas that we are focused on, this is a large amount of money which if injected into the

business, would allow us to look at mobile fleet replacements, etc., as well as increased

purchase concentrates from the market to be able to increase utilization. So we are pursuing it

vehemently, let me say. On the future refunds, which is from February onwards, we have now

been promised in fact on Tuesday by the ZRA which is the Zambian Revenue Authority that

the refunds from March will be paid in May, which is now coming back into a normal cycle of

VAT refunds. On the backlog of which we have in the region of $160 to $180 million

outstanding, we are still in discussion with government as our other mining companies, but it is

progressing well. We have actually had our teams working with ZRA teams and they are

reviewing the documentation requirements, which were there previous to the amendment, and I

am hoping that we will be able to get a substantial part of that VAT refunded in Financial Year

‘16.

Aliya: Aliya from Bloomberg. A question on your production growth. It looks like there is an upward

revision on your near term goals from 56% to 59% from your capital markets day. My

question is that if you could give us some details on what has changed on your drawing board?

The second question is that do you have in mind the target years for your near term? And

finally what are your expectations on the commodity market dynamics, your outlook to

actually achieve this 56% production growth?

Tom Albanese: I think first of all thank you, for the complement on our production growth. I think what we

have is huge investments we have made over the years particularly Aluminum and lay-in

capacity with that, and that is why, if we go back to what I said a year ago, my first priority is,

when we look at those businesses that would not actually paying the way, there we had spent

the money, we were not getting the returns for, so the Aluminum was first in line, the different

iron ore market then and KCM. I think a lot of improvement should see in those particular

areas. I think that we are most excited for the upcoming years, the quite bullish assessment that

Abhijit has on what he is going to do on the Aluminum business because that is really what is

going to drive the cash flow growth even in a volatile market environment, bringing in

additional aluminum production, putting more pots on line, taking power generating capacity


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that we are not using this, we have low PLF factors in Jharsuguda, ramping up that PLF, using

our generators more, turning of that excess generator capacity away into currently excess

aluminum smelting capacity, we have our weaker premium level, we have a higher LME, so

we will make an EBITDA, we will make cash flow and we want to spend much capital as we

do that. I think it is a capital-friendly growth opportunity, very few companies I think as I see

the mining space have that. I think that is why I want to leave that into the second question,

because a year ago, we were coming off the lows in most of the markets, we thought that this

was we are going to see some growth in the market, healthier market and then we saw relapses

in oil prices, we saw relapses in iron ore prices to a lesser extent, but relapses in aluminum and

copper. So we went through a tough time early part of this calendar year as oil within the 40s,

copper within the 5500, iron ore also in 40s and we are now coming out of that and I think that

people are beginning to say this first sign is spring, I hope it is, I hope that the capital reduction

are beginning to have an effect on overall over supply conditions in the sector and that we can

see resilience in these markets on a going forward basis, and we are very well positioned for

that because the markets that are most doing the best now in this current environment in oil in

terms of recovery, copper in terms of recovery and aluminum in terms of recovery, but it is

helped by the fact that zinc never went down in the first place because everyone knows zinc

production will be dropping over the course of this calendar year. So, in an environment, we

are very well positioned, but let us just say we have another relapse like we did a year ago,

because, we cannot predict that, and all the experts are going to convince us otherwise. We are

not spending any capital, we are focusing on positive cash flow, we shown in the second half

which was in a low commodity price environment that we are able to deleverage and increase

our dividend. That is a huge combination that we are making right now in a market that we

would never like to have seen, but, if we have the market again, we will deal with it. So, we

are looking forward to stronger, more positive assessment as some of these oversupply

conditions began to wind themselves down and they will overtime, and we are well positioned

to that period, but, we will also be as well positioned as anyone else in any market condition.

I think we probably have one more question.

Participant: Participant from Barclays. First question is how much of your zinc capacity could be at risk

from the higher royalties which you mentioned? Second question is you talked about 1.3

billion of procurement and marketing savings, that is quite material percentage to EBITDA

What sort of timeframe could we expect those to realize? And then finally on oil, you were

saying in your CAPEX plan, you are retaining flexibility to invest $1.4 billion as oil prices

improve, you are assuming $50 a barrel for this year, we are about that level now, what sort of

price level should we expect you to spend more capital?

Tom Albanese: I am glad you asked the oil that someone has asked for oil because I am confused here on the

line and I will ask them to maybe comment on what we are looking at the Barmer Hill and

DPS with that, but maybe first Akhilesh, I have just been with you to Zawar and sort of a more

difficult mines and have your focusing on, improving the efficiencies and the development

sequencing in light of these royalty threats, and then I like to comment specifically on


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procurement, so maybe Akhilesh first start with zinc and then I will ask Mayank, you can talk

on oil.

Akhilesh Joshi: So, we have the one mine, Zawar mine which is a low grade, mine grade is around 5% for the

lead and zinc total metal content and that mine is of the higher cost mine, but we have

reworked the mine planning so that we know that we can reduce the cost till we start the

reworking on the planning and putting the new ideas in reducing the cost of development and

putting the higher efficiency. So we are working on how these things how to reduce the cost of

development, how to reduce the mid raise of the development, and today I can say none of our

mines is at risk due to the change in the royalty.

Tom Albanese: Akhilesh, some of the work you did in Zawar, it is a challenging mine, because it is an older

mine, we are ramping it up, but just the change in mine engineering we were looking at, we

moved the development from the footfall into the ore body itself and significant reduction and

development footage has relationship to tonnes mine is having a good effect on capital

efficiency of that business as we are ramping up. So these are the kind of things that we are

always looking to improve.

Mayank Ashar: As far as the oil prices are concerned at $60, our goal is to make Barmer Hill profitable and we

are aggressively working on improving productivity in the Phase-0 as well as reducing capital

cost and an illustrative chart in the package. As far as what else we can turn on, we have a suite

of projects from $60 to $100 that can be turned on both some in our coal fields as well as in

satellite fields. So we will be monitoring the sustainability of price levels and making decisions

on capital investment. Our focus in terms of growth in the oil business is two-fold; one is to

make the cost and capital structure work better for Barmer Hill; and secondarily, the gas

project which we will be moving to implementation mode.

Tom Albanese: As we said at the Capital Markets Day, this is a long-term opportunity to use the short term

volatility in oil prices to bring more service providers, bring North American technology into

the Rajasthan field, particularly as we needed for the tighter formations in Barmer Hill

formation. On procurement, I am taking a personal interest in this and I am actually putting

procurement reporting indirectly to me for this, although in terms of this project, although it is

you have agreed to use the 26th and 27th hour of every one of your days on procurement, now

use the 24th and 25th hour on my days on procurement. As I said in my comment I see a lot of

good commercial acumen within the teams in Vedanta, I do not see people accepting increases

without heavy negotiations, but usually very-very student permissive of looking for the lowest

price for the product we provide. I think we should be proud of that. I also think that we tend to

look at this in organizational verticals, and not necessarily looking at holistically so what I

think to make procurement work, you got to take it out of the procurement department, you got

to take it out of the commercial department and you have to actually look at it as the holistic

supply chain, you got to actually ask yourself, what is the type of material that is required, are

you buying this stuff that fit for purpose for the operator, are the operators involved, what is

the quality… we assure that when it gets on the docket of the same quality what we thought we


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paid for, what is the infrastructure, what is the logistics supply chain to get it to our side, what

is the testing procedures to make sure the stuff we got on our dock is the same that is on our

side, how much of it is going to waste, how much of it is being leaked in terms of just that

normal leakage in transit. That cannot be run by a procurement department, that can only be

run and manage by a business unit chief executive. So the people that are on this call that are

answering your questions, either they will make operate that type of effort, and I have a

confidence they are going to make that type of effort. So we said four years to get this 1.2

billion between procurement and marketing — 800 million procurement, 400 million in

marketing — and I am quite confident we will get that on an accelerated basis based upon the

work we have just been doing over the past six months.

Chairman, if you want at the close of any comments or remarks, I am happy for that.

Anil Agarwal: Tom did fantastic, in a country which is almost 20% of the world, we are the leading natural

resource company, we believe that we have a $2 trillion economy and our government is

committed to bring that $2 trillion to $20 trillion, we have foreign direct investments is about

$20 to $30 billion, we have a plan to take to $150 billion and the major part will come the

company what we have, the natural resource what we have abundant and we are fully

committed to that and I am thankful to that our 11-years of listing, we have tried step-by-step

to perform better to come to your expectation and thank you, thank you very much for coming.

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